Telular acquires the SMARTank Line of Business from SMARTLogix, Inc.


We discussed the potential for this stock in our last blog at the end of December and summarized why the stock looks attractive. Three weeks later and we get another surprise from the company. Telular acquires the SMARTank Line of Business from SMARTLogix. We will revisit why we thought the stock looked attractive and if it still applies after this acquisition.
1.      Management projected fiscal year 2011 net income before non-cash items of $8.0 to $9.0 million. This cash flow generation more than covers anticipated $6.0 million of annualized, regular dividends, while still providing surplus cash for corporate development activities.
2.      Commencement of an annual dividend of $0.40 per share
Telular will pay the $6.0 million initial purchase price with $1.5 million in cash and the remaining through the conversion of an existing receivable. The cash outlay is not large enough to have any effect on the dividend going forward. On an annualized basis, Telular estimates that SMARTank will contribute an additional $2.6 million of revenue and $1.4 million of net income before non-cash items to its consolidated financial results. SMARTank is not public so we have to assume management has done their homework and the above projections are accurate. These projections, if correct, make the acquisition immediately accretive. Telular is increasing guidance on fiscal 2011 net income before non-cash items to total $8.5 – $9.5 million from the above $8.0 – $9.0 million.
3.      Management appears to be conservative, very focused on costs and shareholder friendly ….  The dividend and insider buying implies high confidence by management going forward.

The above still applies but time will tell if they took the conservative route regarding their SMARTank projections.
4.      Sustained growth and the potential for accelerated growth in the TankLink segment going forward. Recurring revenue margins around 60%.
The acquisition complements the TankLink segment so growth is being accelerated externally and the potential for internal growth has not changed. SMARTank margins appear to be high based on management’s projections.
5.      Pristine balance sheet, no debt and excellent cash flow generation.
The only change is cash flow generation has been accelerated, further strengthening the balance sheet.
There are provisions for SMARTLogix to earn up to an additional $2.4 million based on performance measures over the next two years but it’s my understanding the above projections would prove conservative for the entire amount to be paid out.  The acquisition appears to have reinforced the reasons we like this stock. The risk involves the accuracy of management’s projections. We will have a clearer picture when the results for the March 2011 quarter are announced, probably in late April since we do not have access to SMARTLogix’s financials. 
The market appears to like today’s news sending the stock up 3.8%. The stock still yields a healthy 5.7% after today’s close.
The financial projections and fair values have been updated based on management’s SMARTank projections and are available from this web page .
Advertisements

About IIEX

Click "About" in the menu at the top for more information about the author. We also have a page at "Seeking Alpha" ( http://seekingalpha.com/author/david-klein ). Please Click on and read the "Disclaimer" in the menu at the top. Have a question? Contact us at iiex@live.com.
This entry was posted in WRLS and tagged . Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s